Governor Newsom signed SB 113 Economic Relief: COVID-19 on Feb. 9, 2022. The bill includes but is not limited to the following significant tax relief:
PASS-THROUGH ENTITY (PTE) ELECTIVE TAX CHANGES:
- Taxpayers can use the PTE Elective Tax Credit to offset the state’s tentative minimum tax for tax years beginning on or after Jan. 1, 2021.
- Pass-through entities that have partnerships as one of their owners may elect into the California PTE Elective Tax beginning in tax year 2021, although the share of income related to partnership owners is not considered qualified income or eligible for the Elective Tax credit
- · Single-Member Limited Liability Companies may claim the Elective Tax Credit and their income is considered qualified net income for purposes of the tax if they are an owner of an eligible PTE.
- The bill also includes the guaranteed payments as qualified net income for purposes of the act beginning in tax year 2021.
- The bill requires the Elective Tax Credit to be applied against the net tax after credits for taxes paid to other states for taxable years beginning on or after Jan. 1, 2022.
ADDITIONAL TAX-RELATED UPDATES:
- The bill restores Net Operating Loss (NOL) deductions and eliminates the NOL deduction limit for taxable years beginning on or after Jan. 1, 2022. The NOL limitations will still apply to the 2020 and 2021 tax years.
- The bill lifts a $5 million annual cap on business tax credit claims for taxable years beginning on or after Jan. 1, 2022. The $5 million limitations will still apply to the 2020 and 2021 tax years.
- Additional conformity includes the federal exclusion of Restaurant Revitalization Grants retroactive to 2020 (full conformity) and Shuttered Venue Operator Grants retroactive to 2019 (partial conformity).
See SB-113 here for additional details.
Check out our blog on state and local tax (SALT) workaround tax regimes here for other states and reach out to our tax team if you have any questions.